In the recent Autumn Budget, the UK government announced significant changes to inheritance tax (IHT) affecting farmers. Starting April 2026, the first £1 million of combined business and agricultural assets will remain exempt from IHT. However, assets exceeding this threshold will be subject to a 20% tax rate, a shift from the previous full exemption under Agricultural Property Relief (APR).
The government estimates that approximately 500 estates annually will be impacted by these reforms, with nearly three-quarters of estates claiming APR remaining unaffected.
Despite these assurances, many farmers express concerns that the new tax burden could necessitate selling parts of their land to meet tax obligations, potentially disrupting family-run farms and their legacies.
How Financial Planning Can Preserve Your Farm
Proactive financial planning is essential to navigate these changes and protect your farm for future generations. By exploring tailored strategies, you can mitigate potential tax liabilities and ensure the continuity of your agricultural operations.
The information provided below is correct at the time of writing, but no legislation has yet been published.
Understanding the Changes
The forthcoming reforms to APR mean that, from April 2026, only the first £1 million of your agricultural and business assets will qualify for full IHT relief. Assets exceeding this amount will incur a 20% tax rate. This change aims to balance tax contributions while considering the unique financial structures of farming businesses.
Who Is Affected?
While the government suggests that a minority of farming estates will be affected, it’s crucial to assess your individual situation. Factors such as land value, equipment, and other assets contribute to your estate’s total worth. It is important you check with professional advisers experienced in tax issues relating to farmers and land-based businesses before taking any actions.
Taking Action: Steps to Protect Your Farm
- Evaluate Your Estate: Conduct a comprehensive assessment of your assets to understand your estate’s value and potential tax liabilities.
- Consult an Expert: Seek advice from professional advisers experienced in tax issues relating to farmers and land-based businesses to explore strategies tailored to your circumstances.
- Consider Lifetime Gifting: Transferring assets to heirs during your lifetime can reduce the taxable estate, though it’s important to be aware of potential tax implications.
- Explore Trusts: Setting up trusts can facilitate the transfer of assets while providing for beneficiaries and potentially offering tax advantages.
- Review Succession Plans: Ensure your succession plans are up-to-date, reflecting the new tax landscape and your family’s future needs.
We’re Here to Help
Navigating these changes may feel overwhelming, but you don’t have to face them alone. As a trusted network of general financial planners, we act as your professional ally, guiding you through the complexities of financial planning with a team approach. Think of us as your personal concierge, connecting you to a wide range of specialists with substantial expertise in supporting farmers and land-based businesses.
Our network includes chartered accountants who can advise on the tax implications of different family business structures, ensuring compliance and optimising outcomes. They bring significant experience in areas like business restructuring and farm diversification, tailored specifically to the needs of the agricultural community. We also work closely with chartered tax advisers who specialise in a variety of tax matters relevant to farmers, including income tax, capital gains tax, capital allowances, and VAT.
Together, we can create a robust, bespoke plan that protects your farm’s future while simplifying the complexities of tax and compliance. By combining our holistic approach with the deep expertise of our partners, we ensure your farm remains a thriving legacy for generations to come. You can count on us to provide transparent, accessible, and supportive guidance every step of the way.
Remember, proactive planning today can make all the difference tomorrow. Let’s work together to secure the future of your family farm.
Navigating Changes to Agricultural Property Relief: How to Safeguard Your Farm
The changes to Agricultural Property Relief (APR), set to take effect in April 2026, have sparked concern among many farmers. These reforms mean that more estates could face inheritance tax (IHT) liabilities, making it crucial to explore strategies to protect your farm’s future. While there are several effective approaches, it’s important to understand the tax and cost implications involved.
1. Lifetime Gifting: Passing on Assets Early
Transferring assets during your lifetime can be a powerful way to reduce the taxable value of your estate and potentially lower inheritance tax liabilities.
What to Keep in Mind:
- The Seven-Year Rule: Gifts made more than seven years before death are typically exempt from IHT, meaning early action can pay off.
- Capital Gains Tax (CGT): Be aware that gifting assets can trigger CGT based on their current market value, which could lead to additional costs.
- Gifts with Reservation of Benefit (GWR): If you continue to benefit from a gifted asset (for example, living in a farmhouse without paying rent), the asset may still count towards your estate for IHT purposes.
- Pre-Owned Assets Tax (POAT): If you gift an asset but continue to use it without paying market rent, POAT may apply, resulting in an income tax charge.
Key takeaway: Lifetime gifting can work well if planned early and with an understanding of these implications.
2. Trust Structures: A Flexible Solution
Trusts are a versatile tool that can help you transfer assets to beneficiaries while retaining some control over their use.
Things to Consider:
- Types of Trusts: Options like Discretionary Trusts, Life Interest Trusts, and Discounted Gift Trusts each have unique benefits, so choosing the right one is key.
- Tax Implications: Trusts can incur entry, periodic, and exit charges, and not all trust-held assets will qualify for APR or Business Property Relief (BPR).
- POAT Risks: If you still benefit from trust assets, you may face POAT charges, so it’s important to structure trusts carefully.
Key takeaway: Trusts offer flexibility but require professional guidance to ensure tax efficiency.
3. Succession Planning: Securing the Future
A comprehensive succession plan ensures your farm is passed down smoothly and in a tax-efficient way.
Points to Address:
- Business Restructuring: Incorporating your farm or forming partnerships can offer tax benefits, but this could also trigger CGT or Stamp Duty Land Tax (SDLT), so weigh the pros and cons.
- Wills and Agreements: Clear and up-to-date legal documents can prevent disputes and help secure reliefs like APR and BPR.
Key takeaway: Succession planning isn’t just about taxes—it’s about ensuring your legacy endures.
4. Diversification and Business Structuring: Unlocking Tax Reliefs
By restructuring or diversifying your farming business, you may be able to maximise tax reliefs such as BPR.
What You Should Know:
- Qualifying Criteria: To qualify for BPR, your business needs to be actively trading rather than investment-focused. For example, farm cottages let as holiday rentals might not qualify.
- Impact of Changes: With reforms also affecting BPR, professional advice is essential to adapt your strategy effectively.
Key takeaway: Diversifying your business could help secure valuable tax reliefs, but careful planning is essential.
5. Insurance Solutions: Peace of Mind for Your Family
Life insurance can provide funds to cover IHT bills, ensuring your family doesn’t have to sell assets to meet tax obligations.
Considerations:
- Policy Structuring: Writing life insurance policies into trust ensures the payout doesn’t form part of your taxable estate.
- Costs: Premiums can be high, especially if you’re older or have health concerns, so factor this into your planning.
Key takeaway: Insurance can be a helpful safety net, but ensure it’s tailored to your needs and estate plan.
Why Planning Matters
Every strategy has its own tax implications and costs, so it’s vital to tailor your approach to your unique circumstances. Seeking advice from financial professionals with experience in agricultural estates can make all the difference. Proactive planning isn’t just about taxes—it’s about protecting your farm, your family, and the legacy you’ve worked hard to build.
Let’s make sure your farm stays in the family for generations to come.
Frequently Asked Questions About Inheritance Tax (IHT) Changes
What are the changes to Inheritance Tax (IHT) allowances?
The upcoming changes introduce new thresholds and conditions for IHT allowances, particularly impacting agricultural and business properties. A key focus is the £1 million threshold for relief, with specific rules on how it applies to estates. These adjustments aim to make the tax system fairer but could leave some estates with new tax obligations.
How will the new thresholds affect estates?
The thresholds work by exempting the first £1 million of qualifying assets, such as agricultural or business property. However, any value above this limit may be subject to IHT. It’s important to assess your estate to understand how these rules apply to your situation.
What does the government say about the impact of these changes?
The government asserts that most estates will not face significant changes. According to the Office for Budget Responsibility (OBR), only a small number of estates will be affected each year, ensuring the majority of farms and businesses remain protected under the revised allowances.
What additional reliefs might be available?
In addition to the £1 million threshold, certain estates may qualify for other reliefs, potentially increasing the tax-free allowance. While higher thresholds, such as £3 million, could apply in specific circumstances, these depend on the assets and their use within the estate.
The idea of achieving a £3 million inheritance tax (IHT) allowance relies on fully utilising all available reliefs and exemptions: the Nil Rate Band (NRB) of £325,000, the Residence Nil Rate Band (RNRB) of £175,000, and the £1 million cap on Agricultural Property Relief (APR) or Business Property Relief (BPR) at each spouse’s death. However, doing so often requires careful planning, restructuring of your business, reorganising property ownership, and updating your wills. Without such steps, it may not be practical or possible to fully optimise these allowances.
See this CLA article for more details.
How can life insurance help with IHT planning?
Life insurance can be an effective way to manage IHT liabilities. By placing the policy in trust, the payout remains outside your taxable estate, providing funds to cover the tax bill without forcing the sale of assets like land or property.
How can gifting reduce IHT liabilities?
Gifting assets during your lifetime can lower your taxable estate. However, keep these key points in mind:
- The Seven-Year Rule: Gifts made more than seven years before death are generally IHT-free.
- Tax Implications: Gifting could trigger other taxes, like Capital Gains Tax, so timing and strategy are essential.
Are trusts or company transfers helpful for IHT mitigation?
Yes, trusts can be an excellent way to pass on assets while managing tax exposure. Similarly, transferring assets into a company can have benefits. However, both options come with their own rules and potential tax implications, so expert advice is recommended.
What other strategies can reduce IHT?
- Mortgages: Taking out a mortgage can reduce the net value of a property for IHT purposes.
- Asset Sales: Selling assets to pay the tax bill is another option, but this may trigger Capital Gains Tax, which needs to be considered in your planning.
Who is responsible for paying the IHT bill?
Typically, executors and heirs handle the payment of IHT. If there’s any delay, interest on unpaid tax may accrue, so having a plan in place to cover liabilities is crucial.
What are the next steps I should take?
- Seek advice from professional advisers experienced in tax issues relating to farmers and land-based businesses to understand the implications for your estate.
- Review your assets and current IHT strategy to ensure alignment with the new rules.
- Consider using tools like trusts, life insurance, and gifting to manage liabilities effectively.
Why does proactive planning matter?
These changes highlight the need for a forward-thinking approach to financial planning, especially for those with significant agricultural or business assets. With the right advice and strategies in place, you can preserve your estate and its legacy for future generations.
Taking action now can make all the difference—secure your family’s future with confidence.
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